Don’t miss our subsequent reports on this story:

• Updated: Stalking Horse Bid for Eastern Mountain Sports Approved
• Updated: Mountain Warehouse Approved to Buy Eastern Mountain Sports Stores
• Mountain Warehouse Founder Mark Neale Aims to Bring Eastern Mountain Sports Back to its Former Glory

The Bob’s Stores chain and some Eastern Mountain Sports (EMS) stores are liquidating and closing this summer after they jointly declared bankruptcy in June, however the company hopes to gain court approval to continue operating some of its EMS stores.

PNC Bank alleges the Meridien, Connecticut-based companies owe nearly $29.4 million in loans it secured in April 2023, in addition to $26.6 million in unsecured debt to landlords, operating debts, and trade creditors, according to the June 20 declaration of Eastern Mountain Sports and Bob’s Stores President and CEO David Barton.

“On March 29, 2024, PNC declared a default under the Loan Agreement,” said the declaration. “Subsequently, PNC exercised dominion over the Debtors’ cash and receivables, and only funded certain expenses as the Debtors tried to work out a reorganization plan with PNC’s consent. These discussions did not result in a consensual resolution, and on or about June 12, 2024, PNC stopped funding the Debtors entirely.”

The company’s creditors with the 20 largest unsecured claims were listed in the filing, and included:

• Yell Steel Enterprise Inc., which is owed $472,335.
• Smartwool Corp., which is owed $455,290.88.
• Oboz Footwear, which is owed $432,147.30.
• Marmot Mountain International, which is owed $353,647.76.

Amer Sports, Black Diamond, Google, Cotopaxi and more were also named as creditors.

The chains’ approximately 50 stores generated $131.8 million in net revenue in 2023 and the company’s most valuable asset is its inventory, valued at approximately $37.27 million in gross inventory on a cost basis, according to a second declaration filed by Barton.

EMS and Bob’s Stores have had multiple owners and experienced three and four bankruptcies, respectively, and restructuring over the years. Most recently, California-based owner GoDigital fueled brick-and-mortar and e-commerce expansion.

But the growth strategy didn’t go as planned.

Since filing for bankruptcy in June, there were a flurry of motions and expedited hearings to kick off liquidation sales in time for the July Fourth holiday. The court approved its liquidation plans, which it’s conducting with Hilco Merchant Resources and Gordon Brothers.

Twenty-seven EMS and Bob’s Stores in the Northeast have liquidation sales and are slated to go out of business, and the remaining 15 EMS stores are running clearance sales.

Mountain and its entities have hired Epiq to assist with its restructuring plans, but it’s not yet decided if those EMS stores will continue to operate or if the company will wind down entirely. It’s also not clear if creditors will be reimbursed. A creditors’ meeting is scheduled for July 23, and another hearing about the company’s potential to restructure is scheduled for August.

Employee Reductions After Rapid Expansion

The companies employed approximately 771 full- and part-time employees as of the bankruptcy petition date, according to the declaration. Leading up to and after the bankruptcy filing, Barton filed several WARN notices with the Connecticut Department of Labor advising that layoffs were likely imminent because of its financial woes.

On May 21, he confirmed that 145 workers would lose their jobs.

“We would like to have given you more notice of this action but were unable to do so because the bank has informed us within the last week that it will refuse to fund the employee health insurance premiums, 401K administration, payroll, as well as other critical financial obligations which, if not paid, will likely prevent us from being able to operate the business going forward,” he wrote.

Barton, who has been with the company for six years according to his LinkedIn profile, did not respond to requests for comment, nor did the legal team representing Bob’s and EMS.

The Risks of Restructuring

Eoin Comerford, the former CEO of Moosejaw and now the principal of Outsize Consulting, said in an interview with The Daily that he felt for the people at the companies involved in the bankruptcy, including those at EMS and Bob’s.

EMS was founded in 1967 in Massachusetts. It was acquired by Versa Capital Management in 2012 and operated under Vestis Retail Group, which also owned Bob’s Stores. Bob’s Stores date back to 1954, when Bob Lapidus opened Bob’s Surplus in Middletown, Connecticut. Since then, it has expanded into a chain and has changed hands numerous times with owners declaring bankruptcy four times.

Jason Peterson, GoDigital’s chief executive officer, shared more about its plans to expand the number of EMS and Bob’s Stores with The Daily in April 2023.

“You’re going to see us double down on product innovation and private label, while at the same time expanding our e-commerce and physical retail footprint,” Peter said about EMS.

Part of that growth story included an ad campaign that poked fun at the company’s previous store closures.

Comerford said that when GoDigital got involved, it likely seemed like optimal timing to execute the expansion because of the boost the pandemic drove in outdoor sales. But that surge has slowed significantly, which has hurt the outdoor channel overall, including Mountain Sports.

There are a few risks to restructuring, however. For one, the costs of operating a corporate office are high. Staff have already vacated the company’s distribution office, according to court filings, but executive salaries, technology, and operations are expensive, and require revenue from multiple stores to sustain those activities.

“You’ve got stores that are not profitable, that are taking away from the profitable stores,” Comerford said. “And at the same time, you’ve got all of that corporate overhead that has to be covered. I haven’t been privy to the to the restructuring plans, but I’d be very interested to understand how they plan to cover all of that corporate overhead, employee benefits, the tech platform, legal, all of those things.”

Secondly, if brands aren’t reimbursed, there’s no guarantee they’ll want to keep working with Mountain Sports or be sold in the remaining EMS Stores, should the company be permitted to keep them open.

“There are some brands, typically ones that are more founder-led, non-public brands that have long memories,” Comerford said. “And if you burn them once, they’ll find somebody else to sell their product in the market and they’ll move on. You’ve got other brands that are part of large, public conglomerates, that are very pragmatic, right? They’ll say, ‘We went through that, that happened.’ Move on to the next thing and off you go.”

Neither public companies nor small brands agreed to comment on the story. They’re invited to the upcoming creditors’ meeting on July 23.

That meeting, which is not presided over by a judge, will be conducted by a United States Trustee and will give creditors an opportunity to ask questions of the debtor.

Kate Robertson can be reached at [email protected].